Compensation Management

Compensation
It refers to a wide range of financial and non financial rewards to the employees for the services rendered to the organisation . a) Transactional rewards b) Relational rewards

All forms of financial returns and tangible services & benefits employees receive as part of an employment relationship

Compensation
It is a system of rewards that motivates employees to perform An organisational tool to foster the values,culture & the behaviour they require An instrument that enables organisations to achieve their objectives

Objectives of Wage &Salary Administration

To attract competent personnel To retain the present employees To improve productivity To improve efficiency To control Costs

Objectives of Wage &Salary Administration

To ensure fairness To improve union-management relations To improve the public image of the company Comply with legal regulations

Essentials of sound wage and Salary structure

Internal Equity External Competitiveness Built in incentive Link with productivity Individual worth Increments

Wage & Salary Administration It presents the analytical framework for reward systems the It presents the analytical framework for reward systems the company level which includes financial & non company level which includes financial & non-financial financial rewards , employee benefits, incentives & their link with rewards , employee benefits, incentives & their link with productivity. It summarizes the key issues in the wage system productivity. It summarizes the key issues in the wage system from the point of view of the key actors in the industrial from the point of view of the key actors in the industrial relations system relations system workers, unions, managements & the workers, unions, managements & the government. government

Theory of Equalizing Differences

This theory states that wage differentials occur as the result of intrinsic properties of specific occupations that require wage compensation for negative job traits or are compensated for with non-pecuniary positive traits.

Human Capital Theory

It seeks to explain wage differentials as a consequence of differing human capital stocks that determine an individuals marginal productivity. Human Capital Theory explains wage differentials as a byproduct of productivity differentials

Human capital

Human Capital is the stock of knowledge, skills, aptitudes, education, and training that an individual or a group of individuals possess It is all those skills that are acquired through education, but also talents, I.Q. ,practical experience, etc.

Types of Human Capital

1. General human capital transferable to every other job and thus improves overall productivity and thus wage 2. firm-specific human capital not transferable to any other firm and therefore does not improve productivity and thus wages anywhere else

Human Capital Theory

Individuals who invest money and time gain skills that improves their human capital and ultimately their productivity.

Internal Labor Markets

ILM focuses on the long-term relationships of employers and employees and the gains to be made by both parties by continuing to operate with one another ILM theory argues that firms benefit from maintaining good relationships with their employees and visa versa Reduction of costs Employees benefit from improved employment stability and the chance for increased wages and promotions.

Devaluation Theory

Wage differentials as a result of biases towards those employed and earning wages. Devaluation Theory suggests that the wage difference stems from the bias of the wage payer, the firm. Bias from those gauging productivity could result in women earning less

Reward Policies
Reward Policies provide guidelines for implementation of the reward strategies and aids in designing and managing the reward processes It indicates how the management should behave in various issues related to Reward management

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Reward Policy
Reward policy addresses a wide range of issues 1. Levels of Rewards: This indicates the paying capacity of a company. The pay policy depends on a number of factors Policies on the level of rewards also cover employee benefits like sick pay, holidays, health care & other perks

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Reward Policy
2.Market rate and Equity:-A policy should be formulated on the extent to which rewards are market driven rather than equitable. It is possible to use market supplements to the rate of the job as determined by job evaluation which reflect market rates

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Reward Policy
3.Attraction and Retention -Golden hellos and golden hand cuffs to attract and retain high quality people ie having a total reward policy. To attract prospective employees, factors for specific occupations should be analysed .

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Reward Policy

Retention policies should take into account the major retention issues the company is facing and sets out ways by which the issues can be dealt with

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Reward Policy
4.Relating rewards to business performance:The rewards can vary according to results. This policy includes guidelines on how gain sharing and profit-sharing schemes should operate in the company

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Reward Policy
5.Total reward Policy:-assesses the importance of the non-financial rewards and how they should complement the financial awards. 6.Contingent Reward:- this policy states whether the company is willing to pay for contribution, skill, performance ,competence etc and if so, to what extent and under what circumstances.
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Reward Policy
7.Assimilation policies:-When new pay policies are introduced, measures to be taken to assimilate existing employees into it. This policy should state, where should they be placed and what needs to be done if their present rate is above or below the new scale.

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Reward Policy
8.Flexibility:- The extent to which the organisation wants to introduce benefits in response to the fast changing business conditions. 9.The role of Line managers:- The policy will cover the level of decisions, the line manager can make and the guidance that should be given to them
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Reward Policy
10.Transpaency:-Employees will be satisfied only if they know what is the criteria for rewards and how they are used to determine their pay and their methods of pay progression.

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Reward Policy
11.Involve employees:- Reward policies are more likely to be understood and will be more effective if employees are also given a voice in the design and management of the policy.This is very much applicable to job evaluation and relating pay to the performance

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Reward Policy
12.Communicating to employees:- Reward processes in an organisation is a powerful media to convey messages relating to the organisational goals to the employees. This will convey to the employees how their total remuneration package is made up

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Wage - Definition

Money paid to the workers is considered as wages The wage is the payment made to the workers for placing their skill and energy at the disposal of the employer. The method of use of that skill and energy being at the employers discretion and amount to the payment being in accordance with terms stipulated in an contract of service.
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